Stocks Rise as Overseas Risks Abate
Market Movers
- Hong Kong’s CEO Carrie Lam withdrew legislation to allow extradition to China.
- Stocks moved higher globally on the reduced risk of further unrest.
- Hard Brexit also looks less likely after Boris Johnson's defeat in Parliament.
- Mortgage applications fell 3.1% last week vs. a decline of 6.2% in the prior week.
- Trade balance is -$54 billion, about in line with the -$53.4 billion expected.
Mike’s Commentary
Yesterday we had a drumbeat of bad news with the U.S. ISM manufacturing numbers indicating weakness in the sector and talk of tariffs and recession everywhere. Today, we get a bit of a reprieve after Hong Kong’s Chief Executive Carrie Lam formally withdrew legislation that would have allowed extraditions to China, legislation that has sparked weeks of protest and complicated matters for China and therefore U.S./China relations. With the hope that further unrest and a potential Chinese response can be avoided, stocks in Asia and Europe rose overnight.
In fact, Hong Kong’s stocks rose almost 4%, the most since 2018. It was like a whistle blew and someone shouted “everyone back in the 'risk-on' pool". Technology, Energy and Industrials are leading today and safety sectors like Staples and Utilities are lagging. Big pharma is also dragging down the healthcare group – see the full table below. Treasuries fell along with European bonds, gold retreated and the dollar index fell as oil prices rose.
U.S. futures followed suit, gaining the equivalent of over 200 Dow points as we entered the trading day. Exchanging 300 point losses for 200 point gains is not a recipe for success, but the reprieve is welcome.
A hard Brexit also seems a little less likely after a U.K. House of Commons vote will force Boris Johnson to delay his plans by at least three months.
The big picture has not changed much. Easy money and a decent U.S. economy support stocks but trade tensions, global weakness and bond market signals give the bulls pause. Volatility returned in August but stocks are still up 16% YTD. Earnings season is still a few more weeks away so traders will be looking at speeches this week by Bank of England Governor Mark Carney, Fed speakers on Wednesday and Friday, and of course the jobs report on Friday. Nonfarm payrolls are forecast to rise 160,000 vs. last month’s 164,000 gain and the unemployment rate is expected to remain at 3.7%.
Sector Recap
Brian’s Technical Take
The easing of tensions in Hong Kong is helping to fuel a global rebound in risk assets. The Hang Seng Index (HSI Index) is leading today’s activity with a 4% gain, its best performance in 2019. The S&P 500 Index gained as much as 0.9%, however it is fast approaching the upper bound of the 2,822 – 2,944 trading range it has been in over the last four weeks.
Meanwhile the long UST 10YR yield, now 1.47%, is only one day removed and less than 2bps away from its YTD closing low, 1.46%. We are not out of the woods yet. The mid-summer correction is still ongoing at least until this sideways range is resolved. The bond market suggests stocks may have more corrective price action to deal with.
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Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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